DOMAIN'S VALUE CUT TO $2B ON DEBT AND COSTS AHEAD OF FAIRFAX SPIN-OFF

Written on the 27 September 2017 by Ben Hall

DOMAIN'S VALUE CUT TO $2B ON DEBT AND COSTS AHEAD OF FAIRFAX SPIN-OFF
FAIRFAX Media's (ASX: FJX) star asset Domain has been trimmed by analysts to just over $2 billion because of debt and corporate costs including the salary of CEO Antony Catalano.

Catalano's remuneration was one of several issues singled out by the analysis from Citi along with softening advertising revenue from Fairfax's metro mastheads.

The boss of Fairfax's online real estate listings business will be paid a fixed salary of $1.2 million a year which can be topped up with short and long-term incentives including $5 million worth of options.

Citi released their valuation after details of Domain's spin-off from Fairfax were released last week. They value Fairfax Media, which has 2.3 billion shares on issue, at $1.10 per share, with Domain's value dropping from $1.02 to 88 cents, putting the company's value at $2.02 billion.

Fairfax shareholders will vote on the planned spin-off on November 2 and will receive one share in the newly-listed Domain for every 10 Fairfax shares they own.

Citi analysts David Kaynes, Kofi Mensa and Manisha Sandilaya have trimmed their valuation of Domain since details of the spin-off were released by Fairfax last week.

Kaynes says the reduction in Domain's valuation was due to higher than expected corporate costs of between $10 million and $12 million, from the $8 million to $10 million previously disclosed, and the net debt that Domain will have at listing.

"The debt is the biggest factor, shifting value from Domain to the rest of Fairfax," Kaynes says.

Domain is expected to be listed on the ASX by 16 November if the spin-off is approved, and will issue approximately 575 million shares, with Fairfax retaining 60 per cent of the stock.

When it becomes listed, Domain will become a separate entity with around $154 million in net debt.

Last week Fairfax Media released a trading update and forecast its revenues across the media group will decline by 4 to 5 percent, dragged down by its struggling mastheads.

The 186-year-old media company also revealed that its Metro Media division which includes the Sydney Morning Herald, the Age and the Australian Financial Review will take a revenue hit of around 11 per cent.

Its Australian Community Media (ACM) division, which is a collection of local newspapers and websites, will take a 10 per cent drop in revenue along with its New Zealand asset Stuff, while Macquarie Media is down around 4 per cent.

As Fairfax prepares to separate Domain from its loss-making businesses, the pace of revenue at its star asset has also slowed with a forecast revenue growth of 13 per cent in the first six weeks of 2017-18, down from 16 percent.

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Author: Ben Hall

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